Retail REITs recovered earlier this year as retail data came in quite strong. More recently, prices have crashed back down leaving many of the common and preferred stocks quite cheap. 2CHYP currently has just over 12% retail exposure which makes us underweight the sector relative to the broader REIT index. We may look to add some beaten down retail REIT preferreds such as CBL-E.
A majority of the economic indicators continue to show retail sales coming in strong, so my guess as to the nature of the price correction is that people are reading the strong numbers as a pull-forward in response to projected tariffs. As a result, some are anticipating 3Q and 4Q to come in weak related to future demand being pulled forward into the 2Q numbers.
I don’t buy this argument. Anticipatory buying is something that market participants will do, but I don’t see that as normal citizen behavior. It just strikes me as unlikely that a significant portion of the population is buying an extra pair of jeans now because there might be a tariff on those jeans at some point in the future. Therefore, I am anticipating retail numbers to be in-line with what would normally be expected in a strong economy.
I could be wrong on this outlook, but for certain stocks the bad scenarios are already priced in. CBL Preferred E traded below $15 today against a $25 liquidation preference. This seems overblown given the ample dividend coverage and sufficient asset value to cover the preferreds in the event of liquidation. We may look to pick up some shares when we get a favorable opportunity to free up capital.